With the CRTC making changes to the wireless code in Canada, more than a few carriers remarked that these changes could result in more expensive devices. They can no longer spread the price of the phone over 3 years, so they’re saying you will have to pay more up front to offset that lost year. Let’s take a look at the current market and see if this really makes sense.
As of today, you can purchase a Samsung Galaxy S4 from Rogers for $699.99. The exact same Galaxy S4 smartphone from AT&T can be had for $639.99 . With today’s conversion rate of $1USD = $1.01861 CAD (thanks to xe.com), the AT&T S4 will end up costing you $651.903. There’s still a nice gap of $47 between these identical phones.
There is a volume of scan difference between these carriers. Rogers has roughly 9 million subscribers and AT&T has about 55 million subscribers. That volume difference is going to get AT&T a better price on the Galaxy S4. This volume difference can easily explain the $47 price difference between devices.
Both AT&T and Rogers are offering the phone at a subsidized price of $199.99. That means AT&T is subsidizing your purchase by $440 and Rogers is subsidizing $500. The big difference is that AT&T is covering that $440 over 2 years, which means $18.33 a month. Whereas Rogers is covering the $500 over 3 years, which is $13.89 a month. If Rogers drops keeps the subsidy at $500 and drops it to 2 years, the monthly cost becomes $20.83 – roughly $7 more a month.
And this is where Rogers (and the other Canadian carriers) are saying you will have to pay more for that same phone – to make up that extra $7 a month they are going to “lose”.
But are they really losing money here? According to the 2012 Annual Report (page 35) from Rogers, they are getting an Average Revenue per User (ARPU) of $69.30 a month. This is down 1.4% from the previous year’s value of $70.26. Even with the small decline, it’s still significantly more than AT&T who are reporting (page 34) an ARPU of $47. That means Rogers is making a little more than $22 more per customer each month than AT&T.
So, Rogers is making more per customer each month. Maybe that’s not all profit? Surely there are expenses involved in running a cellular network. No surprise that operating expenses for Rogers is significantly smaller than AT&T – $4,217 vs $50,169 (both values are in millions).
The end result here is that we are already paying more for our phones and our service. When adjusting the subsidy from 36 to 24 months, there will be a hit of $7 per month. If Rogers wants to keep their current profit levels, then they need to increase your bill by $7 a month, or reduce the subsidy amount so the price of the phone goes from $199 to $367. This would make up the extra cost of that phone. However, the reality is they aren’t about to lose money and the actual cost of the phone will go unchanged. It’s more about how that cost is recouped. Rogers profit is sitting at about 42% compared to AT&T at 25% (profit as a percent of total revenue). I can’t see any carrier willing to take a hit to their profit margins – especially if they are already nice and juicy. The new 2 year contract timeframe will translate into a reduced subsidy (paying more upfront for a phones) or a higher monthly bill. Your carrier isn’t about to take a hit on their profit margins. Perhaps the worst part is, if you already own a phone outright, or your contract has run the course of time and you’ve repaid the phone, your monthly bill doesn’t decrease to reflect this and your carrier makes even more off you each month. Your best option is to get a phone as soon as your contract expires every time because you’re paying for it even if you don’t take it.
And to be fair, this applies to all carriers, and not just Rogers. You can look up ARPU, revenue and operating expenses for other carriers from their respective websites. Rogers currently has the largest ARPU in Canada, but I expect you will find that every carrier is sitting in and around the same numbers.